leverage: Operating and financial leverage
operating leverage: the idea of the company that could invest in new machinery that would give
them higher fixed costs in the beginning but would give them lower variable costs later. that
gives that company more operating leverage because they have more operating fixed cost before
they can breakeven. but after they breakeven they make a lot of profit because they have higher
financial leverage : debt : what are some of the differences between choosing to finance which
debt vs. choosing to finance with equity. Those choices effect that leverage. how does that
impact the risk .
will be given ratios for cash build and cash burn ... not the formulas..would be good to
memorize. calculating total net cash flow and breaking it down to monthly or weekly basis and
how long you can sustain that growth before you run out of cash.
calculate and understand the meaning of these ratios: ratios: liquidity: leverage: debt to equity:
profitability and efficiency equations will be given but need to know where to pull the number
from in the question .. and also how to interpret them..cash conversion cycle... need to
understand and where you use them ... so what do they tell you about the organization links
starting by four steps ,., if companies make changes to these variables then is it a good change?
The 4 steps We need to look :
1) Incremental change in contribution and then we look at
2) Incremental change in fixed cost .. does that decision make sense quantitatively and then we
look at things from
3) Qualitative perspective: you need to look at quantity that does not affect quality.
4) You need to make sure that trade off it worth it: sacrificing quality for quantity for short term
some kind of question relating ratios to industry averages and interpreting results from there.
Current ratio: if the ratio is greater than 2 : means you can pay your debt twice as fast ... means
you are in a very good position in terms of risks cause you are able to pay back the money that
you might have loaned. But we don't want this ratio to be above four, there is a reason for that :
risk vs. return: from a return perspective that this means that assets are just sitting there just
waiting there as there could be more return made from them using.
So in terms of comparison we need match the results with rule of thumb. Are there other ratios
that we can compare it to so that it makes more sense for that we can compare current ratio to
quick ratio : the difference is that there is no inventories in quick ratio. Since it takes longer for
inventories to that slows down the conversion cycle. If the quick ratio is stronger than current
ratio than this will trigger to look at you inventory levels. and might need to look at how much
inventory the company is holding on to . Negotiating
Negotiating skills : one minute negotiator to guess and other book used as examples in the
lectures: getting ready to negotiate using the easy process: so making sure that the acronym is
understood !!! ***************
Negotiating strategy: the 2x2 matrix.: accessing you tendencies with different styles. The EASY model
1) Engage: Recognize you are in a negotiation and quickly review viable strategies.
2) Assess: Evaluate your tendency to use each of the negotiation strategies, as well as the
tendencies of the other side.
3) Strategize: Select proper strategy for the particular negotiation.
4) Your one minute Drill: each time you begin a negotiation situation, take a minute to review
the 3 steps.
Collaboration: 2 categories :
1) sages and dreamers: uni-lateral collaboration is de facto accommodation.
2) check strength of accommodation tendency vs. competition tendency.
Interaction styles : how that related to negotiation styles L how the styles interact with the
strategies: DISC material : understand it: depending on your interaction style than you will have
some tendency of using one of the styles of negotiation strategies.
4 basic interaction styles:
D) Drivers : Unemotional decision maker .. much more direct approach. Easy to deal with
..concerned about failure, want to win ,, no loosing .. Tend to take on a competing strategy.
I) Expressive: Boredom ... You want to keep them busy. they want to collaborate so you need to
work on their pace.
S) Amiable : Moving at a very slow pace... to make sure everyone is happy. Not showing their
feeling... Don't want to have conflict. and want to negotiate.
C) Analytics : not making decision yet looking for more data.. looking for more info and don't
want to make a mistake very cautious .. once they make a decision they hold on to it
indicates The way people react based on their DISC properties. Once you know how people
tendency to interact, you can strategize your negotiation.
5 negotiation strategies and when to use them : getting to know when using those strategies will
be most effective.
Avoidance: for minimal Issue : be very careful to see if it is really a minimal issue and recognize
its importance. Deal with it in a way that demonstrate investment in relationship. Superior Option readily available: Don't want to deal with you .. so they avoid talking about it. So you
want to talk about different stuff. So you want to understand what's happening
Accommodation: In significantly weaker bargaining position - No leverage: Can improve
leverage with knowledge. Provide the proper accommodation in "this time around we would be
willing to consider".. and don't make excuses
Competition: Opponent nor inclined or capable of collaborating: Need senior players in loop to
get at true needs. Net worth the effect: Be careful to look for true potential of negotiation.
Collaboration: When situation presents a significant opportunity with capable and willing
decision makers on all sides: win all sides : both parties and the relationship.
Compromise : meeting the bottom line : no one wins : it's just a result that is not so satisfying :
when will we use it.
principled vs. positional bargaining:
Distributive bargaining: There are only so much resources available so both sides are bargaining
and try to get more of the pie. and is pretty close to positional bargaining cause there is only that
much of pie to share. Where collaborating bargaining has to do more with how we can work
together to actually make the pie bigger.
Principled Negotiation: Typical negotiations are positional: people state their position, what they
want .. and we end up somewhere in the middle. Strategy is distributive: competing,
compromising or accommodating. Principled negotiations use an "integrative"/ collaborative
strategy: Produce a wise agreement: Efficiently: and also amiably : not ruining the relationship.
1) being collaborative , understanding , knowing what are the interests of the each side and trying
to work together to try and come up with something of a creative solution,
2) positional bargaining : is where you have hold your ground and stick it out and try to go head
to head with negotiation. the main idea is that the size of the pie is limited
4 Basic point in principled negotiation:
1) Separate the people from problem: attacking the problem together not each other:
2) Focus on interests not positions: position is why u need .. and interest is what you need...
3) Generate a variety of options before deciding what to do :
4) Insist that the result be based on objective criteria: Make sure the decision makes sense. Operations and sustainability
Difference between service vs. manufacturing :
companies that are service based vs. manufacturing : they are different in term of the decision
that they make. How on service side the process is more tangible .. not about the specific product
it's about the experience.
Involvement of the customer is very different so : manufacturing is only considers that the
customer uses that product but from service stand point you need to make sure that the whole
experience was good and are involved through the end and that kind of effect the decision that
they make. How does that drive the capacity of the decision made by manufacturing vs. service
business moving focus from mass production and setting it to focus more on mass customization
is based on changes made in our industry . based on current economic conditions... its more
preferred to do mass customization vs. mass production .
Triple bottom line: moving away from just typical idea of profit to energy efficient:
people and plan : the environment : comp